One challenge about AI is not its intelligence, but rather its “stupidity”.

In a Ted Talk entitled "The danger of AI is weirder than you think," AI researcher Janelle Shane, applied machine learning to discover new ice-cream flavours. She fed into the algorithm based on 1,600 pre-existing flavours. The result?

Pumpkin Trash Break, Peanut butter slime and strawberry cream disease. Hardly appetizing.

As Shane notes, AI "has the approximate computing power of an earthworm, or maybe at most a single honeybee, and actually, probably maybe less. Like, we're constantly learning new things about brains that make it clear how much our AIs don't measure up to real brains."

So, what does this have to do with monopolies?

If we were to reduce Capitalism to an algorithm, a programmer may code it to make production as “efficient” as possible. In fact, monopolies defend their “bigness” because they are more efficient. The pro-monopolist Robert Bork, US President's Reagan failed Supreme Court nominee, put it this way:

“Bork clarified that antitrust laws should promote efficiency, rather than protect inefficient small businesses.”

But to what end?

Suppose the Capitalists were really to let the “efficiency algorithm" loose on the economy. Would we end up with a "people free economy" because human workers and consumers are too inefficient?

It's not much of a stretch. Think about outsourcing. Companies outsource manufacturing to take advantage of low-cost labour in China, Bangladesh and elsewhere. No considerations for the jobs lost in Canada or the US. If AI was to learn from these business practices, why wouldn't they go Matrix on us and automate us out of the equation?

Synergies: Great for shareholders, but not society

As noted in Foreign Affair: The last decade alone witnessed nearly 500,000 corporate mergers worldwide. Ten percent of Americans now control 97 percent of all capital income in the country.”

Is that efficient or what?

The article goes on to say that “a few companies control the field, dictating terms, squeezing out competitors, and using differential pricing to extract cash and power.” Of course, no merger is publicly rationalized on such “benefits”, but instead on “synergies”. That’s a close cousin to “efficiency”, but slightly more sinister. Scotiabank noted a press release for their 2020 annual report:

“The remaining decline of 2% was due to lower personnel costs driven by synergies from acquisitions and other cost-savings initiatives” [Emphasis Added]

Consequently, “synergies” is a polite way of saying “job-losses”. More efficient for the shareholders, but fewer people share economic value generated by the conglomerated entity. And that's the key. Through these 500,000+ corporate mergers, the wealth ends up circulating in the hands of the few.

Walmart is the pinnacle of this: "Walmart today runs 5,229 stores across the United States, the equivalent of many tens of thousands of 1950s-era stores.” Furthermore, “A study published in 2008 in the Journal of Urban Economics examined about 3,000 Walmart store openings nationally and found that each store caused a net decline of about 150 jobs (as competing retailers downsized and closed) and lowered total wages paid to retail workers." [Emphasis Added]

However, it’s not just Walmart.

Since “1980, 40% of all American cattle farmers…have gone out of business while the big players have made dozens of billions of dollars of profit.” According to the US Department of Agriculture, 70% of slaughterhouses have fallen since 1967.

Consequently, Capitalist efficiency comes as the cost of economic value circulating through society.

Unbundling companies: Releasing the value into society

But this works both ways. If you broke up monopolies, more people would share in the value generated by the economic activity. By making the partnership structure, the only legal form of doing business would force an unbundling of the giant stock-based companies. Numerous small companies would emerge from where these companies once stood. For example, suppose 50,000 retail companies replaced Walmart. How many accountants, IT specialists, cash register repair shops, etc., would emerge to support these new retailers that replaced the "efficient monopoly"?

Also consider that after Standard Oil was broken up into smaller companies, the owners “did fantastically well in the break-up, with Rockefeller quintupling his wealth.” In other words, the aggregate value of these smaller companies was higher than the single oil monopoly that once stood in their place.

And this takes us back to the point of efficiency. Capitalists may argue organizing economy around small businesses is less efficient. Sure, a Fed Reserve Paper found that “mergers and acquisitions affect a substantial portion of economic activity worldwide, there is limited systematic evidence of their effect on productivity and market power”, but the real question is so what? How does efficiency help keep people afford housing? Having economists proudly calculating efficiencies on a random spreadsheet while 2.7 billion had zero “social protection” during the COVID-19 pandemic is absurd. Efficiency cannot be discussed without the broader impact of how everyone is doing in terms of satisfying their basic needs.

How do we get back to small businesses?

In Islam, this happens by default. Initial Public Offerings (IPOs) are not allowed because a real, flesh and blood human must make the initial "offer" of partnership, not an artificial entity like a corporation (see here for more details). Furthermore, since a partnership is built on the agreement any partner can leave the company – regardless of how much money they’ve invested. Any partner, labour or capital, can simply exit the company. This will force the remaining partners to either buy the exiting partner or dissolve the company and divide up the assets as per the agreement. Consequently, companies will naturally be small because human beings disagree and there’s nothing to stop them from exiting the company, forcing it’s dissolution and starting up another business.

What should economic algorithms be programmed to do?

Islamically, the problem is not with the algorithm, but the Capitalist programming it. The correct problem that robots should solve for is distribution, not production. We can't eat GDP. The value generated by businesses should be flowing, not dammed up in the hands of the 1%.

In sha Allah, in the next post, we will look at how monopolies inhibit innovation.